Time to Shop Around

The revival of the new-issue market has spread less cheer on Wall Street than might have been expected, because it comes while brokers and exchanges are struggling to adjust to far-reaching reforms imposed by the Securities and Exchange Commission. The changes aim at forcing more competition among brokers and breaking the dominance of the New York Stock Exchange over the nation's securities trading, in part by totally abolishing the Big Board's ancient system of fixed minimum commissions on stock transactions.

Since the last vestiges of the fixed-commission system vanished by SEC order on May 1, a vicious rate-cutting war has erupted among brokers. On many trades big institutional investors (mutual funds, pension funds, insurance companies, bank trust departments) are paying commissions 20% to 60% lower than those charged in April. Rate cutting on that scale, if continued, could force some weaker brokerages into bankruptcy or emergency mergers with stronger investment houses.

So far the small investor has not profited at all from the price war. In fact, some brokerage houses have set a new $25 minimum fee per trade, and most have raised charges to private investors 2% to 8%. There are some signs, however, that the fee trimming ultimately may spread to individual investors. Last week the small Wall Street house of Quick & Reilly, Inc. began cutting commissions as much as 40% (though it still charges a $25 minimum), and some other brokerages are offering complicated discounts on the second step of two-stage buy-and-sell deals. Hence the individual investor has new incentive to shop around.

Right Price. A less controversial reform went into effect last week, when the SEC-suggested Consolidated Tape network began operation. The tape carries quotations for all 2,000 issues traded on the New York Stock Exchange, but in addition to prices on the Big Board itself, it records prices for the same stocks in six other markets. For each trade effected off the Big Board, the stock symbol is followed on the tape by an ampersand and a letter for the market involved: M for the Midwest Stock Exchange, P for the Pacific Coast Stock Exchange, X for the PBW (Philadelphia-Baltimore-Washington) Exchange, C for the Cincinnati Stock Exchange, T for trades executed by member brokers of the National Association of Securities Dealers and not put through any exchange, O for the Instinet system, in which institutional investors trade among themselves with no brokers involved. At a glance, brokers and investors alike can now see which market is posting the best quotation for a particular stock and steer their business where the price is right.

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